Moving the markets Tuesday was better than expected earnings from large blue chip stocks. VZ, KO, Dow, RTX, GE, and MMM all posted better-than-expected data. The move was enough to push the SP500 index back above the 200-day MA. Treasury yields on the 10-year bond closed at 4.84% on a fairly quiet day for bonds. The combination helped push stocks into positive territory in the afternoon. As good as the gains felt at the close, the reality was a lack of conviction on the charts as the back and forth throughout the day didn’t exactly instill confidence. Some rotation towards the large-cap growth stocks on the day and some talk about the 4th quarter rally is still in the air. Time will tell but worth watching how some of the patterns play out. Bitcoin continued to gap higher on buying in front of the SEC decision relative to Greyscale becoming a spot bitcoin ETF. Ten of the sectors closed closed in positive territory for the day. The laggards led the upside while energy led to the downside. The SP500 index remained below 4300 but managed to show a modest bounce-off support at 4200. Banks remain a pocket of weakness based on the outlook with deposit cost, weakening loan demand, and credit quality. Downside risk remains in play. As we have discussed several times of late there is uncertainty in the air and one thing markets don’t like is uncertainty. Looking forward, watch how indexes respond to the Tuesday. Large caps led the move.
Monday we stated that $354.22 for QQQ key. $420.66 SPY key. $457.26 for SOXX key. Decision time for all three was the question. The response on Tuesday was SPY held move up. QQQ held moved up. SOXX held moved up… Wednesday needs to follow through. Earnings after hours from MSFT positive, GOOG negative, watching how that impacts the megacap stocks… META after-hours Wednesday.
Tuesday was a tale of two halves, the first half was indecision and a downside move. The second half was a bounce off the intraday lows and buyers pushed the indexes higher. The large-cap earnings offered a spark eventually to push the indexes into positive territory. As stated above it is a decision point for stocks… rally off the low or continue this leg lower. The complexity of the outlook for global economics, domestic economics, and uncertainty are alive and well. The major indexes held at key levels of support. The S&P 500 index closed up 0.7%. The NASDAQ was up 0.9%. The SOXX was up 1.3%. Small Caps (Russell 2000) were up 0.8%. The ten-year treasury yield was 4.84% flat for the day and a welcome quiet. Crude (USO) was down 2.4%. (UGA) was down 2.5%. Natural gas (UNG) was up 2.2%. The dollar was up 0.5%. We are focused on managing the risk in the current environment.
ONE Chart to Watch: QQQ – 1) Tested support at $354. 2) The down trendline is in play from the July highs. 3) Patience as the consolidation pattern plays out. 4) Looking for a follow-through to Tuesday’s move.
* All Charts in the update are provided by TC2000
Quote of the Day: “All I ask is the chance to prove that money can’t make me happy.” – Spike Milligan.
Additional Charts To Watch
KBE/KRE – The banking sector is being challenged by higher rates. Despite the solid earnings from the sector this week the overhang of rates pushed both the money center banks and the regional banks below the October lows and renewed the concerns over balance sheets. SEF offered an entry signal the last two days… watching how this storyline unfolds near term. Entry $13.35. Stop$13.11.
Stops Hit: YANG
Sector Rotation And The S&P 500 Index
The S&P 500 index closed up 30 points to 4247 moving the index up 0.73% with above-average volume on the day. The index remained bounced at 4200 support and looking for a follow-through. Ten of the eleven sectors closed higher on the day with utilities as the leader up 2.5%. The worst performer of the day was energy down 1.4%. The VIX index closed at 18.9 moving lower on the day as anxiety subsided in the afternoon buying. Plenty to ponder between the headlines and facts. Below a look at the weekly chart shows key support levels to watch moving forward.
XLB – Basic Materials broke support at the $77 level. Consolidation pattern breaks lower bringing the $67 level into play on the downside. The sector was down 3.4% for the week. No Positions. Moved below the June lows… the accelerated downside is oversold technically. Bounced Tuesday but needs to follow through.
XLU – Utilities found support at the $56 level… bounced and faced some resistance at the $59.50 level. No follow-through upside. The sector was down 2.1% for the week. Bottom reversal is testing. Retesting the downside. Nice bounce on Tuesday with solid volume.
IYZ – Telecom reversed lower again test support at the $20.50 level. Remains in a downtrend and testing the previous low. The sector was down 0.8% for the week. No Positions. Back to the previous lows. Bounced on Tuesday.
XLP – Consumer Staples Remains in a downtrend with a bear flag pattern on the chart. The sector was up 0.7% for the week. No Positions.
XLI – Industrials downtrend remains in play and back to the support at $99. The sector was down 3% for the week. No Positions. $97 next level of support.
XLV – Healthcare downtrend in play with $127 near-term support. Managed to bounce but reversed to retest support. The sector was down 1.6% for the week. No Positions.
XLE – Energy gapped higher as the war in Gaza broke out. letting the volatility settle as the upside resumes. The sector was up 0.7% for the week with some testing on Friday. More selling on the downside… watching.
XLK – Technology The sector renewed the downtrend and remains challenged by the economic picture. The sector was down 2.7% for the week. No Positions. Doji candle.
XLF – Financials The move higher in interest rates impacts the sector on the downside. The sector was down 3% for the week. Banks posted solid earnings but worry wins. SEF entry $13.13. Moved below $32.36… need buyers to emerge or more downside.
XLY – Consumer Discretionary broke from the consolidation pattern renewing the downtrend closing below the 200-day MA. The sector was down 4.6% for the week. No Positions.
IYR – REITs returned to support at the $75 level with worries rising with higher interest rates the downside talk focused on defaults rising in commercial real estate. The sector was down 4.3% for the week. No Positions. Broke below $75.
Summary: The index remains challenged by too many issues in too many places. The intraday bounce at the lows was a positive… but it needs to follow through on Wednesday if it is to mean anything technically on the charts. Earnings from blue chips did set the tone for the day. No real clarity to the rationale and comments from companies in the same sector one beating one missing earnings. The return to previous support was met with some buying but plenty of questions remain. A break lower would bring 4150 into play. Patience is key. Remember two things; first, the trend is your friend, and second, don’t fight the Fed.
(The notes above are posted at the end of each week based on activity from the previous week’s trading. The BOLD/ITALIC comments are the current-day changes worthy of note.)
Key Indicators/Sectors & Leaders To Watch
The NASDAQ index closed up 121 points to 13,139 as the index was up 0.93% for the day. Intraday move down to up was of interest and we will need to see a follow-through to the bounce at support. Held the 12,977 level of support (see chart below). The downtrend from the July highs is still in play. A break of the current support opens the way to 12,246.
NASDAQ 100 (QQQ) was up 0.97% for the day as the megacaps bounced in the afternoon. The sector held the $354.22 level of support. The sector had a positive bias for the day with 79 of the 100 stocks closing in positive territory for the day. Intraday volatility remains in play.
Semiconductors (SOXX) The sector moved back to the $457 support… TSM earnings hurting the outlook. The sector was down 4.1% for the week. Closed below support setting up short side trade with confirmation on Tuesday… but bounced back to close in positive territory… still need to follow through on direction.
Software (IGV) The sector moved back to the $336 support. A break lower would get ugly technically. The sector was down 3% for the week. Held support…
Biotech (IBB) The sector remains in a downtrend and broke support at the $119 level. The sector was down 3.6% for the week. More downside Monday… bounced Tuesday?
Small-Cap Index (IWM) Broke support at the $170 level and added to the downside. The sector was down 2.2% for the week. No Position. More downside Monday… bounced Tuesday?
Transports (IYT) downtrend remains in play with a break of support. Gasoline prices and shipping weighing on the sector. Closed below the 200-day MA. The sector was down 1.4% for the week. No positions. More downside.
The Dollar (UUP) The dollar is showing a bull flag on the chart as it consolidates near the highs. The dollar was down 0.3% for the week. No Positions. Reacted to yields dropping Monday… bounced Tuesday?
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 4.92% up from 4.62% last week. TLT was down 5% for the week. Watching how the Fed manages the yield curve. No Positions. TMV was back in play. Dropped 9 basis points on Bill Ackman covering short positions Monday… queit Tuesday was welcome.
Crude oil (USO) Crude sold lower on worries about consumption. Drawdowns in supply last week refuted that concern and crude moved back near $90 a barrel. USO was up 2.1% for the week. Down 2.2% Monday… down 2.4% Tuesday…
Gold (GLD) The commodity accelerated higher this week on all the geopolitics in play. The metal was 2.6% for the week. Added positions at $172. Managing the risk. See notes below. Tested on lower bond yields.
FINAL NOTES
Our longer-term view remains neutral as the upside trend from the October lows was broken. The short-term downtrend from the July highs is where our attention resides. If the longer-term trend is to resume the short-term downtrend needs to reverse… soon. With the short-term trendlines at key support, a break would hit stops on our longer-term positions. Nothing, as we all know, goes straight down or up… there are always positive and negative swings in a longer-term trend. A look at the daily chart from the October lows validates exactly that premise with plenty of volatility along the way. With the trend broken, it puts the broad indexes in an intermediate limbo awaiting confirmation… the last ten weeks’ the micro-trend has offered short-term downside trades. The current bounce off the lows is being challenged by uncertainty in the economy and geopolitics ramping up. Current activity raises questions relative to direction and growth. We look to charts and fundamentals for some answers. The key remains, know where you are now, know what is happening now, and know what is on the horizon… act accordingly. The goal is to manage the risk of positions, take what is offered… short or long, and then manage your money. Stops are a must currently on longer-term holdings. Listen to the market not the talking heads.
Tuesday: Indexes remain uncertain despite the intraday bounce… it offered more questions than answers. Some rotation from growth and energy to megacap tech… Good sign? Watching how this unfolds as not enough data to make a rational decision. There is no lack of issues on the table with each taking their respective turn in the spotlight. We will be patient to let this unfold as the pattern and consolidation remain in play. For the day ten of the eleven sectors closed in positive territory. The leadership is showing some rotation. Economic data is confirming the ugly outlook. I would expect the data to remain negative with the only real caveat being how negative it will be. We have put money to work short term based on the technical moves and we continue to manage risk and take what the markets give. Remember all moves at this point are relief rallies and we will treat them as such until they validate otherwise.
Explore the following links for new pages that dig into data both In & Outside the markets. Jim’s insights highlight potential opportunities emerging from the current market environment. The pages also discuss the Reality of closed opportunities, whether they proved profitable or fell short of our expectations.
Decide what you’re doing before the market opens based on your beliefs. Entry. Exit. Target. Define the risk of the position. Nothing more… Nothing less.
“Vision without action is a daydream… Action without vision is a nightmare.” Japanese proverb
The goal of these notes is to allow you, the investor, to learn how to see the market development as the progression through the sector develops based on news, speculation, and data. Data drives long-term results and develops trends… speculation and news are short-term drivers and offer higher-risk trading opportunities. Through the use of both technical and fundamental data, we can have greater confidence in our trading strategies with a disciplined approach to investing and managing the risk of our money.
